Partnership Structure for Builder with a Land Owner
Hello,
First post! Super happy I found bigger pockets. Nothing but forum reading and podcast listening has been happening in my world since my wife sent me the Hyatt podcast last week. Thank you all for the energy and effort you put in here.
My question:
We are a small residential construction company that has been doing high-end single family projects one at a time. This process has led us to meet and become acquaintances with a few wealthy home owners. My wife and I don't want to follow the scale up construction company model (we already did and it wasn't the best).We do a lot of labor on our projects and are looking in to the future and realizing our bodies will not hold out over time. We are building wonderful houses for great clients that, in this market, soon have fantastic value over the cost to build. In a nut shell, we want to capitalize on a growing market by owning and managing rentals that we build and then sell the properties in the future to reinvest or retire. We are cash poor and cannot afford much good land outright, but could seek spec loans if needed.
I feel like at this point we would do well to talk to a partnership lawyer that can help us dig through options and help structure. At least that is what I am expecting to hear from many about this post. So, any rock star lawyers out there that serve Utah?
But here is the deal we would be offering. Does it seem reasonable and would you consider entering into such a deal?
We started putting the energy into finding land (its super expensive here) and building rentals. We were just working on the possibility of using a small property that some family owns and building a duplex. When we did this, the universe starting sending us other opportunities. The family land deal would be slightly different, but the other deals may or could possibly look something like this:
We have a local workers housing crisis and many want to get involved to help. We have land owners that would like to pay us to build for them, but are willing to partner with us in order to help us move into the market and also this is the only way we are willing to build for them. So they are driven to work with us on 2 fronts from the outset. We are skill rich and cash poor. I.e. - we could bring less then $50,000 cash to the table.
The land owners would move the property ownership in to an LLC. The land value would be equity they start out with. We would handle the structure and property design, planning, permits, bids, sub-division (if needed) for the project. They can basically just sit by the fire and wait. The land owners front money for material costs based on a bid we provide for the structures (this is not money they need to borrow). We provide all the construction labor costs per the bid and the management of the build. After completion we will continue on as the management entity so the owners still do not have to be involved with the day to day. We will be payed for this management and maintenance work.
The equity and or rents will be split based on the partners equity in the project, be it money, land or labor. And sale of the property would be same. The idea being in a hot rental market with rising values a sale in 10 years will net us a decent amount of money, even if we are only seeing a relatively small percent of total equity in the deal.
Thoughts? Is this a reasonable approach or is there a better one out there? What is this developers fee I see talked about? Does that have a place here?
Thanks for any thoughts you are willing to push our way.